Investment activity in the short-term rental industry continues to gather momentum, and recently VTrips has been at the center of it. VTrips is a property management company from Jacksonville, Florida with operations concentrated in Southeastern US. Less than two weeks ago it became known that VTrips had attracted minority equity investment to the tune of USD250 million from Hudson Hill Capital to expand its footprint via mergers and acquisitions.
We had the opportunity to interview VTrips CEO and Founder Steve Milo about this news. We talk about the way forward for VTrips, its focus on the Southeastern US market, and what sets it apart from a contemporary such as Vacasa, who has also been busy consolidating property management businesses to expand its portfolio on its way to going public.
Watch the interview in full below or if you prefer to read it instead, you will find the full transcript of the interview below this video as well.
Interview with VTrips CEO and Founder Steve Milo on property management mergers and acquisitions
Dear Rental Scale-Up members, today I’m with Steve Milo. He’s the founder, CEO of VTrips. I have four questions today for Steve. As you know, he’s someone who’s really, really, important for the US market. And for all property managers listening and watching, there are quite a few things you can learn from him. Without further ado, let’s welcome Steve. Steve, how are you today?
Good, good, Thibault. Good to talk to you again.
Good to see you, thanks for your time. As I said, I have four questions for you, and let’s just dive straight into them. As I said, well Steve, you are quite a famous entrepreneur in our industry, and you’ve built up VTrips on your own. So what will the entry of Hudson Hill Capital change in the way you run your business?
Well, the biggest change is the acceleration in capital. So they’ve pledged $250 million of capital, which is going to allow us to accelerate our growth significantly. And that growth is going to be through M&A, through merger and acquisition, purchasing other companies.
So we feel like we have a well-capitalized partner behind us, and now it’s up to us to execute.
Now as you said, you really want to, that with that money, acquire more companies. And what we specific about your business, about your success, is that you’ve always focused on one region in the US. It’s the Southeastern part of the US. So what are the reasons for you focusing on this area?
“22% of all vacation rentals are in the state of Florida, which is where our company’s headquartered.“
Well, 22% of all vacation rentals are in the state of Florida, which is where our company’s headquartered. The southeast region has the most vacation rentals in the United States.
In fact, five of the six biggest states are in the Southeast region. So those are Florida, South Carolina, Tennessee, North Carolina, and Texas. And so, we’re just very fortunate that our headquarters in Jacksonville, which is the Northern part of Florida, is right in the center of the densest area of vacation rentals in the entire United States.
And so what are the advantages in the way of dominating a region? What are you getting from that?
“If you draw a 500-mile radius around it, you pick up 120 million people. “
Well, I mean, I think when you go deep as opposed to going wide, you’re going to gain synergies, right. So we’re in markets where, like Gatlinburg, which is the Smoky Mountain National Park, has 10 million Americans visit per year. Also has a theme park, Dollywood, and all kinds of other attractions.
If you draw a 500-mile radius around it, you pick up 120 million people. When managing 500 cabins, and we’ve done that through four different acquisitions. There are about 25,000 rental cabins in Sevier County, which is the county. And we’re still just a small fraction, so by continuing to look at opportunities in Gatlinburg and Smoky Mountains, we gained synergies. We have a laundry facility there, we have a sales force in new owner acquisition. We obviously have guests relations, owner relations, general managers.
But we gained synergies in a market that we have deep roots in and we think that’s part of our key to success, is that we want to go deep not wide.
It’s very interesting to hear you Steve, talk about synergies. And again, let me know whether I’m completely wrong or not here. So the way I understand you run your business is that when you acquire companies, then they all run on your tech platform in a way, but you keep most of the operations local, right. So does it mean that when you acquire a company you are more into looking at what kind of job they do with guests and owners, rather than looking into a tech they investing in?
“Well, we think that the vacation rental market in the United States is a localized experience.“
Well, we think that the vacation rental market in the United States is a localized experience. And what that means is, that the people who touch the owners and the guests are critically important, those key employees, right. So the difference between us and a company like Vacasa is we keep the local brand for the most part in every region. So in Gatlinburg, we do not advertise as VTrips, we advertise as Jackson Mountain Homes. And Jackson Mountain Homes is a brand that’s 20 years old, very respected in the community, and the owners, the guests, and the employees know that brand.
And so yes, we take advantage of a centralized tech stack. The synergies that we get through smart locks, through centralized accounting, centralized marketing, centralized reservation.
But at the same time, we put a lot of emphasis on the local experience, the guest experience, the maintenance, the cleaning, and the operations. And we’ve put in a laundry facility there, that’s dedicated just for VTrips. So it’s partly taking advantage of the synergies of a national organization, but also understanding how important that local experience, that local touch is, to make what I consider to be a sustainable business model.
Last question for you, Steve. And you mentioned Vacasa for example — Vacasa or Sonder for example — so other hospitality businesses really, are going public in a way through SPACs. So as such, they release data about their acquisition costs, about their operational margins. How would you compare VTrips and these companies in terms of these kinds of metrics?
“I’d say the big difference between VTrips and Vacasa is we’re very profitable, Vacasa is not profitable at all.“
Sonder, I really don’t know much about. I would recommend people in your audience look at the WeWork documentary. They may find some comparisons to Sonder in that one. You know Vacasa, I think, is much more of a comparison, right. So we’ve actually spent some time looking at their S-4, that they filed as they attempt to go into a SPAC.
I’d say the big difference between VTrips and Vacasa is we’re very profitable, Vacasa is not profitable at all. I mean, we’re profitable with a 10% of the unit count that they have and we’re exceedingly profitable.
So, and as we grow, we’re going to gain synergies on our G&A so we’ll continue to be as profitable or more profitable. And partly, that profitability is the result of two factors. One, technology, we’ve been a big fan of using hosted systems. They’re obviously into developing their own technology, which you would think would make them more efficient and more profitable down the road, but certainly, that is not shown in the S-4.
But their technology costs are about 6% of their revenue. So if you look at their revenue of 750 million in 2021 or a billion in 2022, they’re paying a tremendous amount for supporting their technology, VTrips is a fraction of that cost.
“Their spending on sales and marketing dwarfs what VTrips spends on sales and marketing. And yet VTrips gets much more direct bookings than what’s been revealed in the Vacasa S-4.“
The other big component again, which is kind of strange on Vacasa, is their sales and marketing force. Their spending on sales and marketing dwarfs what VTrips spends on sales and marketing. And yet VTrips gets much more direct bookings than what’s been revealed in the Vacasa S-4. So I don’t know if they’re just not spending their money efficiently or because they’ve extinguished local brands, and they’re trying to build this national or international brand of Vacasa, they have a massive cost to it.
Either way, investors are going to have a choice, right. So between VTrips and Vacasa, you have two different business models. One, which is emphasizing profitability, we’re going to grow the VTrips brand from the bottom up. And then Vacasa, running on their own tech stack, trying to build an international brand and being extraordinarily unprofitable. So very, very, different models.
Steve, thank you so much for all these insights about the industry really, right. We’re talking about different models and that’s, very, very, interesting again hearing from an entrepreneur, who has grown so much his company. Steve Milo, you’re the founder and CEO of VTrips. Thank you so much for your time today.
Thank you, appreciate it.